Global electric car sales more than doubled last year, and their share rose to 9% of the total car sales for the year. In the U.S., electric cars accounted for 4.5% of the total car sales in 2021. So, although the share of electric car sales is rising, they still constitute a small portion of total car sales, offering immense growth potential in the coming years.
These 2 EV stocks have corrected substantially
Markets are clearly in the correction territory. The S&P 500 Index has corrected 13%, while the Nasdaq Composite Index is down 21.3% year to date, as of this writing.
Risky stocks typically fall harder during market corrections. Lucid stock has fallen 50%, while Rivian stock is down 70% so far this year.
Rivian’s initial public offering (IPO) in November last year was the largest in the U.S. since 2014. The stock rose significantly soon after the IPO, crossing $100 billion in valuation. However, the stock saw a drastic correction after the initial euphoria. Similarly, Lucid stock crossed $90 billion in valuation in November and has fallen dramatically since then.
Investors’ aversion to risky names during the broader market correction resulted in the steep fall in Lucid and Rivian stocks, which were trading at frothy valuations, to begin with. Missed production targets for the fourth quarter and lowered guidance for 2022 from both the companies spooked investors further.
Are these EV stocks ready for a revival?
The correction in Lucid’s and Rivian’s stocks has brought them to levels where they could finally be attractive for some investors. If the market recovers from here, the two stocks should also fare better.
Analysts expect Lucid to generate $3.5 billion in revenue this year, while the estimated revenue for Rivian is $6.4 billion. Based on these estimates, the forward price-to-sales ratios for Lucid’s and Rivian’s stocks are 9.1 and 4.5, respectively.
Though these ratios still look high, that’s because of the current low sales level. Over the next few years, sales should rise manifold, bringing the ratios to much more reasonable levels. A direct comparison isn’t apt, but for perspective, Tesla stock is trading at a forward price-to-sales ratio of 8.3.
Lucid recently announced a deal for up to 100,000 EVs with the government of Saudi Arabia. Likewise, Rivian already has an initial order of 100,000 delivery vans from Amazon. Lucid’s cars offer some of the best features and range among those available on the market. Similarly, Rivian is one of the first EV makers to offer an electric pickup truck and has received very positive reviews for its truck.
Though Lucid’s and Rivian’s performances in the fourth quarter were weak, it is important to note that all leading automakers have been hit by supply chain shortages lately. As young EV companies, both Lucid and Rivian face big challenges, and risks.